Rand rally reduces some risk to inflation: central bank

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August 15, 2016 4:06 PM

The rand hit 10-month highs against the U.S. dollar this week, as investors bought into higher yielding assets on expectations that interest rates in G7 economies would stay low.

South African Rand coins are seen in this photo illustration taken September 9, 2015. REUTERS/Mike Hutchings

The rand's recent rally reduces some risk to the inflation outlook, South Africa's central bank deputy governor said on Thursday, but he was unsure how long its strength would last.

Daniel Mminele said the central bank was cautiously optimistic about the rand's recent recovery and it "in some ways pares off" the risk to the inflation outlook.

"This might well just be a bit of a correction. It is important from a policymaker’s perspective to not overreact to short term market movements," Mminele told journalists.

The central bank targets annual inflation of between 3 percent and 6 percent. Inflation was 6.3 percent in June.

The bank kept interest rates on hold at 7 percent that month, saying a weak economy had persuaded it to pause a cycle of hikes that it was ready to resume if price pressures picked up again.

At Thursday's media briefing, South African Reserve Bank governor Lesetja Kganyago said: "(The rand strength) has just provided us with a cushion over a period of time. We do not know for how long."

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